The 'Nix hoped to retain the 27-year-old Bulgarian attacker after a successful two-year stint in the Kiwi capital.
Kraev scored 13 goals and made seven assists in 54 ALM outings in yellow and black, and was essential in Wellington's best-ever season last campaign.
Last week, coach Giancarlo Italiano said the club had tabled an offer and he was "considering whether the offer is worth taking up".
The former international opted instead to head to NSW, becoming the first signing under incoming coach Alen Stajcic.
� Welcome Bozhidar!— WS Wanderers FC (@wswanderersfc) Western Sydney Wanderers FC have today confirmed the signing of Bozhidar Kraev for the next two Isuzu UTE A-League seasons. #WSW pic.twitter.com/GE0x7zhBsiJuly 15, 2024
"What brings me here is my personal motivation to play in a very good club which I believe that Western Sydney Wanderers is," Kraev said in a WSW statement.
"I received amazing interest from the club which made me feel like I was wanted here which is most important for a player."
In a separate Phoenix statement, Kraev offered thanks to the Wellington players, coaches, staff and fans for a "remarkable" stay.
While in New Zealand, Kraev met his partner Brooklyn Baker, who is expecting his first child - a son - this month.
Kraev is part of an exodus of 'Nix talent this off-season, with Polish striker Oskar Zawada, goalkeeper of the year Alex Paulsen, All Whites forward Ben Old and key midfielder Nicolas Pennington all departing.
Bozhidar Kraev celebrates scoring against the Roar in Brisbane. (Darren England/AAP PHOTOS)
Football director Shaun Gill said it was "definitely a difficult time" to recontract players given the club's recent success and reduced distributions from the league.
However, he downplayed concerns about the season ahead, saying the club had endured far worse turnover in previous years.
"We've got 14 players contracted as it stands ... in Uffy (coach Talay)'s first year we had seven," he said.
All Whites forward Marco Rojas has re-joined the club - 13 years after his first stint - helping to replace outgoing talent.